Questions remain concerning new regulation for supporting renewable energy

Conferences

The Government has published a draft legislative package aimed at transforming the present support scheme for electricity generation from renewable sources. Pursuant to the published proposal, the mandatory off-take system in its current form will only be available for generation facilities with a capacity of less than 0.5 MW and for demonstration (i.e. experimental) projects. Generation facilities with a capacity higher than 0.5 MW using renewable energy sources will be obliged to sell the electricity generated individually, on a free-market basis. The “expected” sales prices will be determined by the TSO MAVIR as a so called “reference market price” based on the prices of the Hungarian Power Exchange (HUPX).  

László Kenyeres, Attorney-at-law, Partner at Faludi Wolf Theiss

Parallel to this, the Hungarian Energy and Public Utility Regulatory Authority (HEA) will set the “support prices” for “green electricity” by taking into consideration the production costs and the concept of the fair return of the project. The margin between the support price and reference market price will be the “green premium”, which will be paid to the generators by MAVIR. This will secure the profitability of electricity generation from renewable sources and at the same time it will decrease the distance between market prices and the present mechanisms which disregard the economic cycles of the green energy support scheme.  

What is more, generation facilities with an output of more than 1 MW will only be eligible to participate in the new financial support scheme if they are selected through proper tender proceedings aiming at the selection of the most competitive projects. In the case of generation facilities with a capacity of less than 1 MW, the HEA will decide on the amount of the supported electricity as well as the term of support upon individual request and through administrative procedures.

Although the above concept is quite clear, there are still some questions not yet answered. As László Kenyeres, attorney-at-law, partner of Faludi Wolf Theiss says, if we scan through carefully the detailed rules of the draft legislative package, it is manifest that the technology-related preferences and the share between them remained undecided.  

The new proposal provides in connection with the tender obligation (i.e. for new facilities above 1 MW) that the competent minister shall determine, in a 5-year breakdown, the maximum amount and the annual payment of the green premium subsidy to be distributed amongst all green energy producers or optionally the maximum annual payments of the green premium per renewable source or technology. This means that it is still unclear whether different renewable sources and technologies should compete against each other in lack of technology-related subsidy caps or the real competition will be reduced to the separate renewable source types by the introduction of such caps. 

According to Mr Kenyeres, there are also other unclear points in the new proposal. So-called demonstration projects will be eligible for mandatory off-take and fixed subsidy prices, i.e. able to avoid competition, tendering and direct connection to market prices. This therefore might become a very attractive instrument of the new conception, however, no one knows what level of experimental nature will be required for classification and how the parameters will be determined.  

As Mr Kenyeres warns, wind power also still remained an open question. As it is known, the Hungarian regulation of wind power had a life of vicissitudes leading to a situation where new capacities cannot be allocated in fact creating a degree of uncertainty on the market similarly to the case of cogeneration gas engines. In these areas, the market has been waiting for a long time; the adoption of the new concept of support may be an opportunity for the lawmaker to settle these specific areas, but the new draft legislative package avoided to handle. 

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